Basic economic theory predicts that when prices go down, consumers buy more. But the reality, as it often is, is more complex. Sometimes, when prices go down, consumers don’t even notice. The reason has to do with the powerful influence of consumer perceptions. If people believe a retailer charges high prices, the actual prices charged might not matter much. If they perceive another retailer as inexpensive, it can list products for the same price as competitors but earn more sales. The challenge for retailers—especially those with a low price positioning—is to ensure that consumers’ perceptions match their pricing strategies. For example, one discount apparel retailer learned that by offering a vast variety of price points, it was confusing consumers and leading them to believe its prices were higher than they really were. By eliminating some of this variety, as well as upping its marketing communications and in-store signage to highlight its discount position, the retailer achieved increased sales. These tools appear central to establishing the pricing position, suggesting that retailers must devote more attention to creating an accurate image, both within and outside the store.
Source: James Allen, The Wall Street Journal, February 20, 2017